The Nikkei 225 index plunged and then recovered earlier this week. Photo / Getty Images
KiwiSaver members worried about this week’s volatility in markets should relax, says Morningstar’s data director Greg Bunkall.
Japan’s benchmark stock index plummeted 13% on Monday - its worst day in 37 years as global markets were rattled by the prospect of a US recession, prompting a selloff in markets around the world.
But a day later the Nikkei 225 index finished up 10% and other markets also rallied. New Zealand’s benchmark NZX50 fell from 12,453.04 points on Monday morning to hit 12,142.52 on Tuesday but have recovered somewhat since then.
Bunkall said KiwiSaver funds with more exposure to equities would have seen the largest impact with those with concentrations in US tech stocks, or Japanese or Taiwan equity being the worst impacted.
But he said KiwiSaver investors should never really be worried about market volatility.
“It’s a feature of investing, not a bug – with such a long time horizon, events like this are a non-event.”
Morningstar’s latest quarterly report shows KiwiSaver assets grew $3.5 billion for the quarter to hit $110.8b. The average multi-sector category returns ranged from 0.3% to 0.8%.
Simplicity and Superlife had the best returns of the quarter for the default funds with Fisher Funds’ default fund the only one to dip into negative territory with a return of -0.1%. Five of the six default funds had returns of more than 10% in the year to June 30.
The highest-performing fund for the quarter was Kernel’s S&P Global 100 NZD Hedged fund at 8.9% while the lowest was the Koura Carbon Neutral Cryptocurrency fund, which dropped 15.3%. Although Morningstar says it is most appropriate to evaluate fund performance over the long term.
“Milford has consistently high performance within the moderate, balanced and growth categories over the long term, albeit struggling a little recently. Generate is putting up strong numbers across many time periods,” Morningstar noted in its report.
ANZ remains the largest provider with $20.7b in funds under management followed by Fisher Funds with $16.78b.
Matt Henry, head of wealth management Research at Forsyth Barr, says it’s important not to over-react when markets go haywire, as they did this week.
”It is worth remembering that market volatility is a normal and expected behaviour of markets,” Henry says.
”What has been unusual is the relative calm [or lack of volatility] that we’ve seen in markets over 2023 and 2024 until very recently,” he said.
To highlight how normal volatility is, markets experience a pullback of 5% or more almost every single year (91 of the past 97 years), and a pullback of 10% more two years out of every three.
Since 1950, the average correction (market pullback) has been -14% per year. Since 2000 it’s been -16%, Henry says.
”Secondly, we’re not convinced that the US recession risk is particularly heightened at this stage.”
Henry said the US Federal Reserve was likely to cut very soon, underpinning the US economy, which would be good for stocks generally. He added there was value outside of the tech stocks and that many sectors had hardly moved in a couple of years.”
At times like these, it’s extremely important not to overreact. ”Every time there is volatility there are investors who get nervous. That’s very understandable – humans are hardwired to be loss-averse.
”But our advice to investors is to stick to their long-term investment plans.”
While a raft of companies are preparing to report half- and full-year results analysts at Forsyth Barr say the sharemarket’s performance could be largely independent of the earnings season.
“The most important information in the month will come from the RBNZ on August 14, when we will know if NZ will get its first OCR cut in four years. We think it will, but it is far from certain.
“If the RBNZ delivers a cut and a promise of more to come, we expect markets to perform well, largely independent of earnings season. If there is a hawkish statement and no OCR cut, well ... let’s just hope there isn’t.”
Earlier in the week the global share market turmoil had financial markets pricing in a 92% chance of cut next week but by Wednesday that had dropped to 50% after New Zealand unemployment data came out better than economists had predicted.
The first cut is more likely to be in October or November. The New Zealand market saw a broad-based rally last month after expectations of a rate cut this year appeared more likely. Of the 50 top index stocks, 43 were up.
But that doesn’t mean companies are out of the woods. Forbar’s analysts said they expect a sixth straight earnings season decline. "
“Despite bad news being well flagged, we enter earnings with expectations of more negative surprises than positives. The areas where we see room for disappointments relate to electric utilities and companies exposed to domestic macro weakness.”
That included Spark, Vulcan Steel, Sky TV and Air New Zealand.
“We expect companies with defensive earnings that deliver on expectations to perform well.” They expect EBOS Group, a2 Milk and Scales to be able to meet or beat expectations.”
Fisher Funds’ Robbie Urquhart is picking a good result for ASX-listed Commonwealth Bank of Australia but said the New Zealand arm ASB could provide more telling information.
“I think it will be a good result. I think it will be a benign result - looking backwards it has been a pretty healthy environment for them - credit growth has picked up in Australia. They have done seemingly well from a market share competitive sense. I don’t expect anything untoward. ASB is going to be the interesting one for me.”
He said a lot of Australian research analysts had been coming to New Zealand in recent weeks to look at lessons they could take from New Zealand’s economy and how they could apply to Australia.
“It’s going to be very instructive I think for where CBA goes and where the banks in Aussie go.”
He said forward-looking statements from the ASB about bad and doubtful debts and how things were going in their business banking and mortgage divisions could signal how tough things could get
“As a signalling effect I think that is going to be really interesting to dig into.”
While the number of mortgagee sales is still low they are rising, as is unemployment.
“We are hearing more and more anecdotes of businesses shutting. The forward indicators from ASB will be quite interesting.”
Urquhart is also keeping a close eye on an investigation by Australia’s financial regulators, the Australian Securities and Investments Commission (Asic) and the Australian Prudential Regulation Authority (Apra), into potential market manipulation by ANZ’s traders of the Australian 10-year futures rate in favour of the bank and against the Government.
“It hasn’t had an impact on the share price yet. We own some ANZ shares, we are underweight on them and I’m not inclined to lift it.
“We have some question marks about what to do from here. We will judge that as information is released.”
He said there was a range of scenarios that could unfold.
“If they follow the playbook that we saw with Westpac back in 2019 - obviously the issue was different to this one - they were hit with a $1.3 billion fine and an enforceable undertaking, they had to hold extra capital, and you had a raft of managerial changes and those three things in concert led to Westpac underperforming their peers in a sharemarket sense for a protracted period of time. It was multiple years. And we have seen that reverse only really recently.
“It’s not certain that ANZ will have anything like that levied against them but if it follows that sort of playbook it will be hard to see it as being anything other than disruptive.”
There has been no timeframe put on the review.
“We get a trading update from them this month. I suspect all of the banks will be looking at their systems and processes and every board member will likely be putting pressure on management teams to verify that they are on top of those sorts of things.”
He said faith and trust in financial institutions was imperative.
“This is not helpful for ANZ.”
In New Zealand, the Financial Markets Authority has received six complaints about possible market manipulation in New Zealand wholesale interest rate and Government bond markets, two of which are still being considered.
The financial watchdog has refused to disclose why decisions were made not to investigate four of the complaints, including allegations against a major bank revealed by the Herald in June.
- additional reporting Jamie Gray.
Tamsyn Parker is the Herald’s business editor. She has covered business news for more than 20 years and has specialised in personal finance, capital markets and investment.
Demand for bonds may well stay strong, but there's a catch.